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In-line volumes and better tariffs support performance

GSPL's Q3FY25 performance presents a marginal recovery, EBITDA and PAT witnessed YoY de-growth of 49.3%/48.3%; EBITDA was flat QoQ on lower volumes and marginal recovery in tariffs but PAT was down 65.2% QoQ on higher other income in the previous quarter. Volumes at 29.03mmscmd was in-line with our est. of 28.9mmscmd despite lower-than-expected volumes from power sector. However, the tariffs at (Rs 0.87/scm) were higher than our expectations of (Rs 0.84/scm). While managing cost pressures remains crucial, slower volume growth and lower tariffs, we maintain a NEUTRAL rating on GSPL with a target price of Rs 365/share.

Result Highlights

* EBITDA/PAT at Rs 1.9/1.4bn, down 49.3%/48.3% YoY on a sharp decline in tariffs; and EBITDA was flat QoQ on lower volumes and marginal recovery in tariffs, but PAT was down 65.2% QoQ as there was a higher other income in the previous quarter. The EBITDA performance is in-line with our estimates and higher than consensus on in-line volumes and stronger tariffs. The other expenses declined sharply (as gas transmission expenses in Q3FY25 was at Rs 243mn vs Rs 200mn in Q2FY25) to Rs 447mn versus Rs 1375mn in Q3FY24.

Stock performance

* Transmission revenues stood at Rs 2,323mn adjusted for gas transmission expense (Rs 243mn) was down by 46.6% YoY but up 2.4% QoQ.

* The overall volumes for the quarter at 29.03mmscmd, were flat YoY and down 2.2% QoQ (Q2FY25 – 29.68mmscmd and Q2FY24 – 29.02mmscmd), was in-line with our est. of 28.9mmscmd despite lower-than-expected volumes from power sector. The volumes sequentially declined by 0.6mmscmd mainly hit by power sector which was down by 1.8mmscmd. Overall, the YoY was flat, with large decline in power sector, while other sector compensated a growth.

* EBITDA/PAT Rs/mmscmd at 66.3/46.7 was down 49.3/48.3% YoY but up 2% / down 64.4% QoQ on a sharp decline in tariffs.

* The gas transmission expense of Rs 243mn, which is a pass-through, adjusted for the same which has resulted in a tariff of Rs 0.87/scm (our expected at 0.84), which has declined by 46.6% YoY but up 4.7% QoQ.

* The other income at Rs 0.4bn was up 95.5% YoY but down 86% QoQ on higher dividend income from Gujarat Gas in the previous quarter.

Valuation

GSPL’s FY25-27e EBITDA would grow at a CAGR of 7% with a 5% volume growth due to a sharp fall in tariffs. At the CMP, the stock trades at 17.1x/15.6x FY26e/FY27e EV/EBITDA and 1.6x/1.5x P/BV (excl. investments, it trades at 7.9x/6.9x FY25e/FY26e EV/EBITDA and 0.8x P/BV). We maintain a NEUTRAL rating on the stock, with a TP of Rs 365, valuing it on a sum-of-parts basis (core business at Rs185 at 7.5x EV/EBITDA, investment value in GUJGA at Rs159, Sabarmati Gas at Rs 4 and cross-country pipeline at Rs 18 (1x BV)).

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